I have admitted it before and I will admit it again – occasionally, I play the lottery. Not with any real expectation of winning, of course, but just for the fun of it and the “what if” tease that comes when some of my numbers pop up.
But even though we all dream of winning the lottery, not too many of us are prepared to handle what comes next. In fact, your lucky day could turn into your unlucky day if you’re not careful.
With that in mind, let’s take a look at some of the most important things you can do to avoid becoming a loser after winning.
Before Claiming Your Prize
Laying a good foundation is key to making the most of your good fortune. Before you rush out to claim your winnings, address the following items first:
1. Protect That Ticket and Take Your Time
First of all, protect your winning lottery ticket. Make paper copies, store digital copies, invest in a home safe or take the ticket to the bank to store it in a safe deposit box.
Once you have your ticket secured, take your time to contact the lottery authorities. This is for several reasons, but primarily to allow the media hoopla of a big winner to die down and to give yourself time to breathe and plan for your soon-to-be new life. Most lotteries give winners up to 180 or 365 days to claim their prize, so taking a week off before claiming yours can do a lot for your mental state.
2. Don’t Quit Your Job Just Yet
It’s what you have always dreamed of: quitting your job to retire to the islands with a cold tropical drink, right? But don’t make that decision too fast. You have financial planning to address and you want to be sure you didn’t mistake the numbers or the date on your “winning” lottery ticket.
Just remember to keep your good fortune quiet at work too. A silent smile is all you need. Otherwise, word could get out before you’re ready and your boss may start looking for someone to replace you.
3. Hire Professionals
You probably aren’t a tax attorney, a family planning attorney, or a licensed accountant. When you win a lottery jackpot, you need to surround yourself with professionals. Hire yourself a good attorney who is well-versed in financial issues, as well as a solid fee-based financial advisor and a CPA.
You are going to need them to help you make the best decisions for your future. Moreover, if you feel uncomfortable about any advice you receive, get a second opinion. You can afford it.
4. Change Your Address and Go Unlisted
Once word gets out that you’ve won millions, you are going to hear from a lot of people with their hands out. Charities, causes, friends, long-lost family members, work acquaintances, investment advisors, you name it – you will hear from them all.
Before claiming your money, change your phone number to a new, unlisted one and get a post office box for your mail. This will make it harder for some of these people to find you.
When Claiming Your Prize
You can receive your lottery winnings either as a “lump-sum” or as an annual payment spread out over 20 to 30 years.
There are pros and cons to both choices, so consider each option carefully.
Taking the Lump Sum Payment
When you take a lump sum payout, you won’t actually receive the full jackpot amount. The advertised winning jackpot amount is based on the lottery paying you through an annuity over 20 or 30 years and not all at once.
So when you take the lump sum, they pay you the current cash value of the jackpot, which is much less than each annual payment added up. More often than not, this reduced amount equals about half of whatever the winning jackpot amount was. But that doesn’t mean the lump sum payment shortchanges you.
There are other significant pros and cons as well:
Taking the Long-Term Payout
When you take the long-term payout, you receive the full amount of the jackpot over a period of 20 to 30 years. Here are some of the most important advantages and disadvantages to taking it:
After Claiming Your Prize
OK, so you made the necessary arrangements before asking for your winnings and you decided how you want to be paid. Now what?
1. Talk to the People You Hired
If you hired the right people, they are there to help, so use them often. If you find that you don’t trust them, hire new people. This kind of wealth can be scary if you’re not used to it, so seek qualified help and use it to make informed decisions.
2. Pay Off Debt
Whether it’s leftover student loans, a second mortgage, credit cards, or auto loans, pay off the debt you’ve carried around for years.
That said, you may want to keep your primary mortgage as long as it has a low interest rate. This is because the more money you have, the higher tax bracket you’re often in, and the more important tax deductions become. Either way, get rid of all your high interest debt, and then consult with your professionals to determine what to do with the rest.
3. Start an Emergency Fund
Even millionaires run into financial problems, sometimes more so than the rest of us! Setting up a healthy-sized emergency fund is one of the smartest things you can do with your winnings. A good rule of thumb is to set aside enough to pay for six months of expenses.
4. Put Away Money for Retirement
Allocate a percentage of your winnings to retirement accounts, such as an annuity. You don’t want to have to go back to work at 80 after being a jackpot winner, do you?
5. Setup College Funds
Do you have kids or want to provide for someone else’s kids? Making tax-free gifts toward a love one’s education can be quite rewarding. One option you can look into is the 529 college savings plan.
6. Give to Those Less Fortunate
Whether it’s to a church, a charity, or just to a family member facing hard times, consider sharing some of your good fortune. Plus, when you give to a qualified charity, you get to deduct the donation on your taxes!
7. Learn to Say No
Everyone you know and everyone you have never met is going to ask you for money, for both good and bad reasons. You need to learn to say no to most of them until you decide how you want to spend and save your winnings. Otherwise, you could have nothing left before you know it.
This may be one of the hardest things you’ll have to do.
Rest assured, some people will pressure, threaten, or otherwise try to manipulate you to get their way.
An easy out can be to say you’ve agreed to discuss everything first with your spouse, or your parents, or your financial advisor.
Pick one and use it if someone just won’t let up.
Winning the lottery can be a dream come true, but only 1 in almost 200 million people actually win the Powerball lottery, for example. While those are some seriously stacked odds, the fact is that some people do eventually win and usually have no idea what to do afterwards.
If you’ve won the lottery or know someone who has, consider the tips above.
You’ll be familiar with what to do should your dream come true.
CHECK THE JACKPOT